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The Ted Spread

RSS By: Ted Seifried, AgWeb.com

Ted is the Chief Market Strategist and Vice President in charge of the Zaner Ag Hedge Group and specializes in agricultural hedging employing various strategies using futures, futures spreads, outright options and option combinations. He believes it is paramount to be able to use different strategies to adapt to market conditions. Ted works with large to mid size grain and livestock producers and end users in North, Central and South America.

China v.s Late Planting

Apr 16, 2013

TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS AND IS NOT BE SUITABLE FOR ALL INVESTORS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES, KNOWLEDGE AND FINANCIAL RESOURCES.   

It has been a wild and volatile start to the week for grains.  Yesterday, concerns over China's economy and bombings at the Boston Marathon had most commodity markets down sharply.  Today many markets, including the grains, did their best take back the losses.  New crop corn, wheat and soybeans struggled to get back to Friday's close but old crop came back well.  May corn even posted a sweeping upside reversal after a sweeping downside reversal yesterday.  So what does this all mean?

In the short term we could hope to see continued strength in the grains.  Most of this seems to be confined in old crop after getting over extended to the downside in recent weeks.  New crop may be able to follow higher, but at least today was not able to keep the pace.  I would think that the recent snow in Minnesota and the Dakotas and the continued cold and wet pattern in much of the growing area should offer support to new crop corn.  There may still be time to plant corn in places that got heavy snow, but the current weather forecast will need to hold up and planting will have to go quick.  Even if weather cooperates I think we could have lost 500,000 to 1,000,000 of corn acres.  This should be supportive for new crop corn and bearish for soybeans.  I'm not sure this has been traded into the market yet, and we will have to see how this unfolds in the coming days.

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Longer term, almost all the news in the last 2-3 has been cause for concern.  The stocks report was a game changer, and the recent China economic news could be as well.  Not to mention there are still bird flu concerns in China.  The demand outlook for grains is becoming questionable at best.  This is not good considering there is talk of a 2.2 or larger carryover for corn this year and huge stocks of soybeans in South America.  Weather could certainly change the outlook for big stocks as it did last year, but we all have to admit the weather pattern this year is starkly different then this time last year.  Long term forecasts still suggest warmer and dryer patterns further out.  This is not necessarily a bad thing as long as it doesn't get too warm and too dry.  And, what do long term forecasts know anyway?  This time last year they were suggesting a near perfect growing season, and we all know how that turned out.

The bottom line is that if we pile a half way decent crop this year on top of slumping global demand we are going to get huge ending stocks in corn and add to the already large world stocks of soybeans.  Think about it this way, this time last year new crop corn was testing the $5.00 mark on the idea of 1.6 billion bushel ending stocks.  This year there is a lot of talk of well over 2 billion bushel ending stocks.  Now, we certainly have to get it planted first, but once we do...

CME Options On Futures: The Basics: http://www.zaner.com/offers/?page=9&ap=tseifrie

May Corn Daily chart:

May Soybeans Daily chart:

May Wheat Daily chart:

All this means that speculators should be looking for opportunities and producers need to look to lock up some prices while we have corn near $7.00 and soybeans near $14.00. Give me a call for some ideas. In particular, producers looking to hedge all or a portion of their production may be rather interested in some of the options / options-futures strategies that I am currently using.

In my mind there has to be a balance. Neither technical nor fundamental analysis alone is enough to be consistent. Please give me a call for a trade recommendation, and we can put together a trade strategy tailored to your needs. Be safe!

Ted Seifried (312) 277-0113 or tseifried@zaner.com

Please check out my Blog at: http://tedseifriedfutures.com/

Additional charts, studies, and more of my commentary can be found at: http://markethead.com/2.0/free_trial.asp?ap=tseifrie

Futures, options and forex trading is speculative in nature and involves substantial risk of loss.  This commentary should be conveyed as a solicitation for entry into derivitives transactions.  All known news and events have already been factored into the price of the underlying commodities discussed.  The limited risk characteristic of options refers to long options only; and refers to the amount of the loss, which is defined as premium paid on the option(s) plus commissions.

FOR CUSTOMERS TRADING OPTIONS, THESE FUTURES CHARTS ARE PRESENTED FOR INFORMATIONAL PURPOSES ONLY. THEY ARE INTENDED TO SHOW HOW INVESTING IN OPTIONS CAN DEPEND ON THE UNDERLYING FUTURES PRICES; SPECIFICALLY, WHETHER OR NOT AN OPTION PURCHASER IS BUYING AN IN-THE-MONEY, AT-THE-MONEY, OR OUT-OF-THE-MONEY OPTION. FURTHERMORE, THE PURCHASER WILL BE ABLE TO DETERMINE WHETHER OR NOT TO EXERCISE HIS RIGHT ON AN OPTION DEPENDING ON HOW THE OPTION'S STRIKE PRICE COMPARES TO THE UNDERLYING FUTURE'S PRICE. THE FUTURES CHARTS ARE NOT INTENDED TO IMPLY THAT OPTION PRICES MOVE IN TANDEM WITH FUTURES PRICES. IN FACT, OPTION PRICES MAY ONLY MOVE A FRACTION OF THE PRICE MOVE IN THE UNDERLYING FUTURES. IN SOME CASES, THE OPTION MAY NOT MOVE AT ALL OR EVEN MOVE IN THE OPPOSITE DIRECTION.

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